Corporate Governance Reform in the Age of Finance Capitalism – By John W. Cioffi, Public Law and Private Power

• Date: 01 January 2012
• Author: Martin Gelter
• DOI: http://doi.org/10.1111/j.1467-8683.2011.00896.x
• Published date: 01 January 2012

Book Review

John W. Cioffi, Public Law and Private Power: Corporate Governance Reform in the Age of

Finance Capitalism, Cornell University Press, Ithaca, NY, 2010, 287 pages, ISBN 978-0-8014-4904-8

Comparative corporate governance research has made

considerable progress during the past20 years, and this

book by John W. Cioffi, a political scientist at the University

of California at Riverside and noted expert on the politics of

corporate governance, moves the field further ahead.

The book is a captivating read from the first to the last

page and provides a comparative analysis of the political

foundations of corporate governance laws in the United

States and Germany. While several scholars have developed

“macro” theories that seek to explain the corporate gover-

nance systems of larger numbers of countries, Cioffi focuses

only on these two (particularly important) countries.

The introductory chapters set the stage for the analysis

and give an overview of the author’s two corporate gover-

nance systems of choice. Cioffi avoidsseveral pitfalls that are

common in the legal and financial literature of corporate

governance. Most of all, he rightly understands corporate

governance as characterized by corporate law, securities law

and labor law, and thus assigns a critical role not only to

managers and various types of shareholders (such as retail

investors, institutional investors, families, government enti-

ties, etc.), but also to labor, which is often ignored or rel-

egated to the status of a mere distraction from achieving an

efficient system. Furthermore, he rightly points out that the

shareholder-centrism that has characterized American cor-

porate governance debates in recent decades is relatively

new and began to slowly edge out managerialism in the

1970s. This led to the ascendency of finance, which has

become central to much of the “real” economy, as shown by

the recent crisis.

After having set the stage, the two core chapters describe

US and German corporate governance reforms since

approximately 1990. While the political events surrounding

important US reforms such as the Private Securities Litiga-

tion Reform Act of 1995 or the Sarbanes-Oxley Act of 2002

are probably well known to many readers, the chapter on

the US provides a highly recommendable synthesis of the

development of corporate governance laws during this

period. The chapter on German corporate governance

reform, by contrast, is largelynew territory and based on the

author’s interviews with German government officials, lob-

byists and academics who were involved in preparing leg-

islation. Thebook is thus probably the best available resource

for the political origins of German securities law reform

during the 1990s and 2000s, the Control and Transparency

Act (KonTraG) of 1998 and the German Corporate Gover-

nance Code. It also discusses the Mannesmann takeoverand

Germany’s ambivalent relationship with EU company law,

particularlythe proposed Takeover Directive that was finally

passed in 2004 after many years of political maneuvering.

The book then concludes with a chapter on the politics of the

reactions to the global financial crisis and a summarizing

chapter.

While the author amasses a wealth of information and

discusses many examples in considerable detail, the most

interesting aspect is of course the book’s larger thesis. Cioffi

argues that in both the US and Germany the center-left has

been the main political current embracing shareholder-

oriented corporate governance reform, while the center-

right tends to be more reluctant or in opposition. This may

seem straightforward in the US, where it is obvious to the

casual observer thatthe Democratic Party tends to champion

shareholder rights more strongly, whereas Republicans tend

to oppose shareholder litigation (e.g., in the PLRSA) or more

expansive SEC involvement. Cioffi argues that a similar

pattern emerged in Germany, contrary to the general per-

ception of the center-right CDU being more business-

friendly. He shows that the SPD-Green coalition under

Chancellor Schroeder implemented important corporate

governance reforms (such as the KonTraG) until it lost the

2005 elections. Cioffi thus objects to Mark Roe’s thesis that

European social democratic policies inhibited shareholder-

oriented policies and thus prevented dispersed ownership

from setting in.1However, the two theories actually seem

compatible, since Roe primarily talks about the period in the

middle of the 20th century that influenced corporate gover-

nance structures later on, while Cioffi discusses a more

recent political realignment (at least in Germany).

Both the American and the German center-left had to step

away from its traditional affiliation to labor interests and

embrace what Cioffi calls a “neoliberal” ideology associated

with financial markets, and seek strategic coalitions with the

financial industry. This strategy ultimately turned out to be

disastrous for the SPD, which was butchered among its tra-

ditional constituents by the new Left Party formed by social

democratic traditionalists and the successors of East German

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Corporate Governance: An International Review, 2012, 20(1): 121–122

© 2011 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2011.00896.x